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New York City Prevailing Wage Lawsuits & Third-Party Breach of Contract

Recently, the Second Circuit Court of Appeals sought guidance from New York’s highest court on whether to defer to state labor officials on interpretation that the prevailing wage requirement for certain government contracts be paid only prospectively. sprinkler.jpg

The request for certification from the New York Court of Appeals in the case of Ramos v. SimplexGrinnell LP is rooted in a 2011 decision in federal court that granted SimplexGrinnell a summary judgment on a third-party breach of contract claim. Workers who had installed fire and sprinkler systems in government buildings while working for the firm alleged that the company had not paid them prevailing wages since at least as far back as 2001. As this was a “public works” project, the workers indicated, it was in clear violation of New York Labor Law, Article 8, Section 220.

New York City prevailing wage lawyers know that the law is quite clear: Every public works contract must have provisions to pay workers the prevailing wage. The Court of Appeals has previously indicated that employees, as intended third-party beneficiaries of those contracts, can bring breach of contract claims if they are not fairly compensated.

In order to assert a third-party breach of contract claim in a prevailing wage case, the employee must show that:

  • There was a binding and valid contract that existed between the other parties;
  • The contract was intended for his benefit;
  • That the benefit is sufficiently immediate and the contracting party has a duty to compensate.

This case is somewhat complicated because it wasn’t clear at the time the lawsuit was filed that the work carried out by the plaintiffs – sprinkler system inspection and testing – was in fact covered under the state’s labor law.

In 2007, the workers filed their third-party breach of contract claim for failure to pay the prevailing wage. In the course of that litigation, the defendant company turned separately to the state’s department of labor for an opinion. Prior to that point, there had been no clear indication that these workers were expressly covered under the law.

The company provided its understanding of what was covered – with testing and inspection not listed. Initially, the labor department took that interpretation and posted it on its official website.

However, when the agency’s commissioner became aware of what had occurred, she ordered that list removed and decided to issue an opinion. That opinion, posted Dec. 31, 2009, formally went into effect the following day. It concluded that inspection work was covered under New York’s labor law, and that all inspection/testing workers from that point forward would be entitled to payment of prevailing wage.

While the agency contended such work was likely always intended to be covered under the law, it conceded that the language of the law was confusing, and therefore decided to only enforce it in future cases.

Based on this, the federal court granted summary judgment to the defendants in this case, indicating that the period of alleged violations wouldn’t have been covered because the department of labor’s opinion wasn’t posted until after the lawsuit was filed.

The court found that while the company had generally agreed to pay prevailing wages in its government contracts, there was uncertainty surrounding payment of those wages for inspection and testing work and the company didn’t have reason to believe it was required to pay the prevailing wage to those workers prior to the DOL’s opinion.

Both parties agreed to seek clarification from the New York Court of Appeals. Specifically, both parties needed to know whether the DOL’s opinion – particularly the part about prospective application of it – should be given deference in the lawsuit.

The federal court pointed out that the statute never changed at any relevant time during the case, and that the agency never said that testing and inspection work was not covered under statute prior to that 2009 opinion.

Further, the DOL had no question about the past application of the law to address, whereas the district court did.

In addition to the question about the deference the court should to give the DOL’s opinion, the federal court also wanted to know whether state law obligates companies to pay prevailing wages only for work that it clearly understood to be covered by the statute, or whether prevailing wages need only be paid for all work that is ultimately determined to be covered by a court or agency.

The federal court expressed belief that this would likely be a recurring issue moving forward. The appellate court has accepted review of the case, but it’s not clear when a decision can be expected.

The Law Offices of Ira S. Newman provides employment litigation representation in New York City, Long Island, Great Neck and throughout the area. Call 516-487-7375 or send us an e-mail.

Additional Resources:
Ramos v. SimplexGrinnell LP, Jan. 23, 2014, U.S. Court of Appeals for the Second Circuit
More Blog Entries:
Court Sets Strict Liability Precedence for Prevailing Wage Compliance, Feb. 10, 2014, New York City Prevailing Wage Lawyer Blog